The biggest question facing the nation's largest military shipbuilder is how will Congress pay for the next generation of ballistic missile submarines, the head of Huntington Ingalls Industries said Thursday.
Aircraft carriers and amphibious warships aside, CEO Mike Petters said the funding strategy for replacing Ohio-class submarines is the number-one issue for the industry, not just the company.
"That could become our greatest opportunity and could also become our greatest risk, if it's not done right," Petters said at the Credit Suisse Industrials Conference in Florida.
But the new subs come with a significant price tag, so Congress created a special fund to pay for them. The National Sea-Based Deterrence Fund is separate from the Navy's annual shipbuilding budget, and two lawmakers are credited with pushing it: Rep. Randy Forbes, R-Chesapeake, and Rep. Joe Courtney, D-Conn.
They are major advocates for the only two U.S. shipyards that build nuclear-powered submarines: HII's Newport News Shipbuilding and General Dynamics Electric Boat of Groton, Conn.
Some questioned whether a submarine program should be funded outside the Navy budget. Supporters say the nuclear-missile-armed subs are a national asset because they constitutes the undersea portion of the U.S. nuclear deterrent.
Newport News and Electric Boat are expected to share the work of building the Ohio-class replacement boats, although those details haven't been worked out. Electric Boat recently cut the ribbon on a new facility in Quonset Point, R.I., to build components for the new subs. The company has added 600 workers in the past year, according to Sen. Jack Reed, D-R.I.
If Congress uses the deterrence fund like a savings account, socking away money for big bills coming due in the 2020s, the military shipbuilding base can stay healthy, Petters said. If it has to find the money for the subs in its annual shipbuilding budget, that could spell trouble.
At a Forbes-chaired hearing earlier this week, Eric J. Labs, a Congressional Budget Office senior analyst, laid out the sobering math in the Navy's 30-year shipbuilding plan.
The 2016 plan calls for buying 264 ships at $494 billion over three decades, according to the Navy's numbers. CBO estimates those same ships would cost $552 billion -- and the price is higher when mid-life aircraft carrier refuelings and other work is included.
In other words, if the shipbuilding budget remains static, "the service would not be able to afford its 2016 plan," Labs said.
He also looked at how the Ohio-class replacement boats impact the 30-year plan.
The first Ohio-class replacement sub is estimated to cost $12.1 billion, including initial research, development and engineering, the Navy says. Boats that follow will cost about $5.7 billion on average. CBO's estimates are even higher: $13.2 billion for the first in class and $6.8 billion for the 2nd through 12th ships.
Bottom line: With a static shipbuilding budget and a big-ticket submarine fleet, the Navy would end up buying 192 ships over 30 years, not its stated goal of 264, Labs said.
That's a big concern for HII, which builds destroyers and amphibious warships at its Ingalls Shipbuilding division in Pascagoula, Miss. Those ship programs are more likely to be affected than the aircraft carrier program at Newport News, because the law requires an 11-carrier fleet. There is no such protection for other surface combat ships.
"If the decision is, we're going to pay for (the new submarines) out of normal shipbuilding accounts, then many, many programs will be impacted over a long period of time," said Petters. "That will have a tremendously negative impact to the entire shipbuilding industrial base."
One thing is clear: The new submarines will be built.
"This is a national priority, and it will happen," Petters said. "It's a question of, will it crowd out anything else?"